7/27/2007

Conservatives and the Minimum Wage

Listen to well-intended fisal conservatives, and you might think that raising the minimum wage is a lame-brained fanciful idea that will actually hurt the poor.

Christians have it tough when it comes to deciding who to believe in these economic debates. One side says one thing; the other side says exactly the opposite. It is hard for us who are not trained in economics to understand all the nuances.

I've been doing some research. Here's some of what I've found.

Fiscal conservatives say that most economists agree that the existence of minimum wage laws destroys entry-level jobs.
However,
“Today, that number would probably be cut in half, says Robert Solow, an economist at the Massachusetts Institute of Technology in Cambridge who won the 1987 Nobel Prize in economics. A turning point in the debate came in the 1990s as states such as New Jersey began boosting their mandated wages above the federal level. In 1995, Princeton economists David Card and Alan Krueger published research on unemployment trends among fast-food restaurants in New Jersey and neighboring Pennsylvania. They found that the number of jobs rose in New Jersey compared with Pennsylvania, even though New Jersey had a higher minimum wage. The study, while not perfect, ‘provided evidence that went against the common view,’ Solow says. ‘It changed the way many economists look at minimum wage.’” - Higher Minimum Wage No Longer Seen as Sure-Fire U.S. Job Killer, Kim Chipman (Bloomberg, August 7, 2006).
Fiscal conservatives also state that small businesses are hurt by higher minimum wages. However, this does not seem to mesh with the data.
“In examining state-level small business job growth, the best government data available permits a comparison of 1998 and 2003; the latter is the most recent year for which the data are available. For the 10 states and the District of Columbia that had set their minimum wages above the federal level for most of this period, indicators of economic performance were consistently better than for the other 40 states where the federal minimum wage of $5.15 an hour prevailed.” - States with Minimum Wages above the Federal Level have had Faster Small Business and Retail Job Growth, Fiscal Policy Institute, March 30, 2006.


As we wade through all this, we must be humble in our search for the truth. I am not an economist, nor am I a son of an economist.

But one thing is sure: Jesus Christ wants us to care for the poor. It is a non-negotiable. When I make economic decisions based on my own comfort or on the desires of the rich (something that I have been very guilty of, being both comfortable as a Suburban American and relatively rich - I'm in the top 1% richest people in the world according to Global Rich List {see how rich you are}), I am not following the way of the Lord.

The Economic Policy Institute has a "Raise the Minimum Wage" campaign. Over 650 economists, including 5 Nobel prize winners and 6 past presidents of the American Economic Association, believe that increasing federal and state minimum wages, with annual cost-of-living adjustments for inflation, “can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed.”

Read the statement here.


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75 comments:

Michael Kruse said...

Bob, a few observations.

First, a survey by the American Economic Association of PhD economists on several issues found the following concerning minimum wage:

37.7% Want it increased.
46.8% Want it eliminated (as opposed to just not increasing it.)

I take that to mean 15.5%, while believing it should not be eliminated, also believe it should not be raised. That is 62.3% who do not want increased, nearly a 2-1 margin against raising the minimum wage.

Second, you wrote “But one thing is sure: Jesus Christ wants us to care for the poor.” I would raise three issues here. Half of minimum wage earners live in households earning more $40,000. A great many min. wage earners are teenagers with no skills working in their first job. About 15% of min. wage earners live in households that are below the poverty. Earning the minimum wage does not equate to living in poverty. So if the goal is helping the poor, this is a very imprecise method for doing it that distorts market functions for other aspects of the economy.

Third another way to characterize “Helping the poor by raising the minimum wage” is to say “Helping the poor by making it more costly for employers to take chances on unskilled workers.” It is precisely the same argument. The impact will vary by region across the nation. Some states have higher living standards than others and low skilled workers already earn well above the minimum. Raising the wage some will have little impact. But when you start raising it much above the market minimum, employers are going to find other ways to get the work done without paying artificially inflated wages. It is that simple. Period! There is no question that many min. wage earners (which does not equate to the poor) will experience boosts in their income in regions with lower standards of living. But some will lose jobs altogether while the rate of growth in low-skilled jobs will be dampened. When you disaggregate the data what you find is that it is urban poverty young males who suffer the most from minimum wage increases.

Fourth, what is a just minimum wage? $7.50? 10.00? $25.00? Why not mandate that no one make less that $50,000 a year? If two non-coerced parties have come to an agreement on a wage, on what ethical basis do we employ the coercive power of the state mandate another wage? The just wage is the wage the two parties freely agreed to, not an arbitrary wage established by fiat. Businesses exist to profitably create goods and services. They are obligated to pay a just wage as I just defined it.

Fifth, “Jesus Christ wants us to care for the poor.” I assume by us you mean society. Society consists of individuals and social networks, as well as institutions like family, church, school, voluntary associations, business and government. The contribution of business is that it organizes people and resources for the profitable production of good and services. Some people, for a variety of reasons, do not have the skills and abilities to earn what it takes to provide for themselves. Society (i.e., the combined collection of the institutions I just listed) has the responsibility to care for the poor. How did it become business’ responsibility to make up for the difference between what unskilled workers produce and what they need to live? Where is the biblical moral justification for using the coercive power of the state to compel businesses to pay people more than the services rendered are worth? Other institutions exist to help with the gap between what a person is capable of earning and what they need to live.

I appreciate your commitment and concern for the poor. Where I adamantly disagree with you is on your public policy solution. Minimum wage plays on envy and animus towards those who have been economically successful. It does not accomplish what it purports to do and in fact harms some of the most vulnerable. It uses the coercive power of the state to compel one segment of society, employers, to care for the poor. I don’t waste a lot of time on minimum wage stuff because I think the harm it does is relatively small in the overall of scheme of things but I think it is a wonderful case study for evaluating how we think biblically about public policy.

Michael Kruse said...

The "survey" link failed. Here is the site:

http://gregmankiw.blogspot.com/2006/11/consensus-of-economists.html

Bob Robinson said...

Michael,
I was hoping you'd chime in here. I searched through your blog concerning this issue before writing this post and found you had some insights that I was hoping you could bring into this conversation.

I'm going to take seriously your comments and get back to this soon.

Thanks.

Bob Robinson said...

Michael,

According to that link you gave, Greg Mankiw says, "One issue that fails to generate consensus is the minimum wage: 37.7 percent want it increased, while 46.8 percent want it eliminated." (emphasis mine)

This, I think, proves my point -- that contrary to fiscal conservatives, there is no consensus among economists that a raise in the minimum wage will decrease entry-level jobs.

Dan Fuller and Doris Geide-Stevenson of Weber State University, in their "Consensus Among Economists: Revisited" write, "It is likely that the recent research and debate concerning the effect of a minimum wage increase on employment have shifted economists' opinion toward less agreement (Card and Krueger 1995; 2000; Neumark and Wascher 2000)...Our results suggest that, although a significant degree of consensus exists among economists on many propositions, economists seldom speak with strong consensus. Furthermore, the views of the profession as a whole have been rather fluid over time....there is the suggestion that empirical research affects the views of the profession, as evidenced by the shift in views concerning the minimum wage."

RonMcK said...

Bob
It would be a rare issue on which economists are not split 50-50 or 60-40, so what's new?

Anyway this is not a technical issue, but a moral one. The technical issue of whether it will cost jobs is impossible to resolve, but is really irrelevant.

The moral issue is does the state have the right to force employers to pay a particular wage rate. You cannot get to this from a statement that Jesus encouraged us to care for the poor.

You should care for the poor. Christian employeers should be generous to their employees. You may choose not to buy from businesses that are stingy with wages. You can start a business and pay generous wages. However, I do not think that Jesus was saying that we should use the power of the state to force unbelieving employers to be generous to the poor. I just don't think Jesus was in the business of using the power of the state to force people to be good, although many of this followers are quite keen on the idea.
Ron

Bob Robinson said...

RonMcK,

I am sympathetic with your assertion that Jesus was not in the business of using the power of the state to force people to be good.

However, our situation in the 21st Century America seems quite different from Jesus' situation under imperial Rome. We live in a representative republic, where the government is obligated to make laws that we, as the people, deem are for the common good.

I doubt that in Jesus' day that we could lobby congress for better safety regulations for cars or safe foods or the regulation of monopolies or the elimination of child labor.

Our government represents us - and is a check on unfettered capitalism that would never pay the worker what he deserves.

So, the moral issue, it seems to me, is in what ways should our representative government be proactive for the common good and when should it be restrained?

For a helpful article, see Ron Sider, For the Common Good: A biblical perspective on the role of government.

Michael Kruse said...

Great topic Bob! A few more observations.

There are not two positions on the minimum wage. There are multiple positions. For instance, another way to breakdown the stats I mentioned would be to say that 53.2% believe there should be a minimum wage (46.8% want to eliminate it). But 62.3% believe the min. wage should not be increased (37.7% believe it should.) There is barely a consensus that we should have a minimum wage but a large consensus say that it should not be raised.

Making it more complex is when we disaggregate a population like “the poor.” You mentioned the 2000 report by David Neumark and William Wascher. Here is an abstract of a report they published earlier this year at National Bureau of Economic Research: Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era (emphasis is mine)

We study the effects of minimum wages and the EITC in the post-welfare reform era. For the minimum wage, the evidence points to disemployment effects that are concentrated among young minority men. For young women, there is little evidence that minimum wages reduce employment, with the exception of high school dropouts. In contrast, evidence strongly suggests that the EITC boosts employment of young women (although not teenagers). We also explore how minimum wages and the EITC interact, and the evidence reveals policy effects that vary substantially across different groups. For example, higher minimum wages appear to reduce earnings of minority men, and more so when the EITC is high. In contrast, our results indicate that the EITC boosts employment and earnings for minority women, and coupling the EITC with a higher minimum wage appears to enhance this positive effect. Thus, whether or not the policy combination of a high EITC and a high minimum wage is viewed as favorable or unfavorable depends in part on whose incomes policymakers are trying to increase.

Our evaluation about the merits of the minimum wage depend on if we are talking about aggregate or disaggregate, and if disaggregate, which group we give priority to. I agree with you that there is no consensus about all the implications of the minimum wage and this is precisely why its use is bad public policy. The state is the only societal institution with legitimate coercive power. The burden of proof for the use of coercive power exists with those who wish to employ it. The default assumption should be toward should be toward state non-interference until a compelling case for interference is made.

You wrote “Our government represents us - and is a check on unfettered capitalism that would never pay the worker what he deserves.”

How do we determine what a worker deserves? If not the market, how?

I think I may have another comment to add later about government involvement.

Michael Kruse said...

I see I'm not having luck with links so I'll stop trying to embed them and just type them out. Here is the one for the above article.

Bob Robinson said...

Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era

Bob Robinson said...

Michael,

You wrote, "The state is the only societal institution with legitimate coercive power. The burden of proof for the use of coercive power exists with those who wish to employ it. The default assumption should be toward should be toward state non-interference until a compelling case for interference is made."

-Well said. And I think this is something that progressives and liberals need to hear more often.

You ask, "How do we determine what a worker deserves? If not the market, how?"

That's the crux of it all, isn't it? It seems to me that the minimum wage is meant to set the wage floor.

The minimum wage is where society draws the bottom line as to how low anybody can get paid. That bottom line should be, I think, something that is at or above the poverty level for a 40 hour work week. A full-time worker at the current minimum wage would make just $10,712 a year. That does not seem to be a fair wage.

Michael Kruse said...

BTW, thanks for pointing out the Sider article. I think I may do a response to that at my blog before long. Here are more thoughts

The poverty rate for a single adult is $9,973 ($5.00 per hr.) for a single adult and $26,683 ($13.35 per hr.) for a family of six. Here is a scenario.

You want to keep your lawn mowed and trimmed. Two men, approximately twenty-five years old present themselves to you as yard care workers. Based on what you have been able to determine, these two men have equivalent skills, experience, and reliability. They provide the same quality in the same amount of time. You check around and find that most yard care folks of their quality in your area charge $10-$12 per hour.

The first man is single with no dependents. Allowing for overhead and other expenses, he needs a wage of $7.50 to net the poverty wage of $5.00 an hour (or $2.50 per hour for overhead). He offers to work for $10 an hour.

The second man is married with four children. Allowing for overhead and other expenses he needs a wage of $15.85 to net the poverty wage of $13.35 an hour (or $2.50 per hour for overhead). He offers to work for $16 an hour.

Which of these two men are you going to hire? The overwhelming majority of us are going to hire the first man. Why? Because we are heartless evil capitalists, callous to the plight of the second man? No. Because we determine wages and prices based on the value of the services rendered not on the need of the person rendering the service. The market signal to man number two is that he needs to pursue other options in order to make a better living.

If the government steps in and sets a minimum wage at $16.00 so that a family with four children can earn an above poverty income, what are you and your neighbors going to do? Many will opt to cut their lawns themselves. Some will hire neighbor kids and pay them under the table. Others will opt to cut their grass less frequently and skimp on trimming. The demand for the service will drop. The handful of yard care folks who manage to stay in the market will benefit from the mandate, but many of those who could have been working at $10-12 hour will now be without a job.

But back to my main point. I fully agree that society, of which business is one institution, has as its mission for no one to live in poverty. Society consists of family, neighborhood, informal networks, church, voluntary associations, business and government. When people are incapacitated from providing for themselves, through its array of institutions, society needs to provide for folks. When able bodied people experience a gap between what they earn and what they need to be living beyond poverty, society with its array of institutions of which business is one institution works to help them eliminate that gap. The contribution of business is to effectively organize means of production to efficiently produce goods and services, thus creating wealth and opportunities for employment. They are obligated to pay a just wage, which is whatever wage two non-coerced parties agree to. If the wage is insufficient for living, then society (an array of institutions) must endeavor to help that person develop the wherewithal to close that gap.

The minimum wage places the sole responsibility of closing the gap on employers. Why? What is the rationale? Why should employers be singled out as the gap closers instead of society? When you and I hire lawn care workers we determine wages and prices based on the value of the services rendered not on the need of the person rendering the service. Why do we then mandate that businesses pay workers more than the value of the services rendered, thus distorting the market by sending false singles to workers about the value of their work and destroying jobs in the process? Forcing employers to pay more than services rendered is state mandated “charity” except that in the traditional sense, charity is freely chosen act.

I submit that businesses have a responsibility to pay fairly negotiated wages and that broader society has the responsibility for aiding those who are unable to close the gap between what they earn and the poverty minimum.

(I hope I’m not annoying you with these lengthy comments. I really appreciate the opportunity to articulate this stuff. I may copy some of what I’ve written into a post later. Thanks!)

RonMcK said...

Bob
The "common good" is a very slippery concept. The problem is that if a good really is common, ie the action will be good for everyone, then everyone will do it, so there is no need for a law. So if you have to use law to force people to do something, it is not a common good. It will good for some, but bad for others. If it truely was a common good, a law would not be needed.

When you use the power of the state to coerce goodness, you always end up forcing a minority, and often a marjority, to do things that they do not want to do. That was never Jesus game.


You actually seem to be advocating salvation by law. Jesus came because salvation by law does not work. I can never understand why his followers want to take it up again. Is it because they do not believe that the Holy Spirit can his job?

Surely the problem of poverty in a wealth countr like the USA could be solved, if Christians (including employers) listened to what the Holy Spirit is saying to them about helping the poor. The fact that you are looking to the state to solve this problem is a sad indictment on the church.

Bob Robinson said...

Michael,

Thanks for your scenario. It helps to explain the problem of discovering a fair wage.

Your comment raises a deeper issue for me: The minimum wage is merely one of the many employment and labor laws that have been created to protect the worker. These laws have been meant to stop unscrupulous employers from their exploitation of workers. Are we not supposed to pass laws so that employers are required to pay overtime, or provide meal breaks, or create standards for health and safety, or protect workers from being fired if they speak up or trying to organize themselves in order to create a better workplace?

The reasoning you give, it seems to me, would stop government from meddling in all these other areas as well. What do you think?

Bob Robinson said...

Ron,

Thanks for your important input to this conversation!

Here's a few thoughts on what you just wrote:

1) "The problem is that if a good really is common...the action will be good for everyone, then everyone will do it, so there is no need for a law."

This line of thinking seems to advocate that the collective morality of society rises above the depraved morality of the individuals in that society. As I read my Bible, it seems that societies (not least of all Israel) seem to lean toward doing that which is not commonly good. God places laws on Israel to lead them toward living in Justice and Shalom, knowing that they would not and could not arrive at the common good on their own accord.

2) "That was never Jesus game...You actually seem to be advocating salvation by law. Jesus came because salvation by law does not work."

My theology sees more continuity between the OT and the NT than that. I see Jesus coming to fulfill the law, not to abolish it. The law works - in fact, it works so well that God has written the law on our hearts in the New Covenant. The Holy Spirit's presence does not mean that laws are no longer needed. The laws will still be needed until the parousia, at which time God will finally be fully with his people. In the meantime, we are in need of law. And, even in our eternal future, there will be political structures, for we read in Revelation 21:22-26 that the kings of the earth will bring the splendor of the nations into the New Jerusalem.

3) "Surely the problem of poverty in a wealth country like the USA could be solved if Christians (including employers) listened to what the Holy Spirit is saying to them about helping the poor. The fact that you are looking to the state to solve this problem is a sad indictment on the church."

Yes, I grant that this would be the case if Christians (including employers) listened to what the Holy Spirit is saying to them about helping the poor. But we're not. And we are as sadly depraved as the rest of society when it comes to greed and oppression. We need laws to suppress even our evil intentions. Correct if I'm wrong, but it seems that you are advocating a society of lawlessness, for if we (especially Christians) are following the Holy Spirit's leading, we have no needs for laws for the Common Good. Wouldn't this result in anarchy?

Michael Kruse said...

“The reasoning you give, it seems to me, would stop government from meddling in all these other areas as well. What do you think?”

No, not at all. In economics we talk about externalities. Externalities are imperfections within the market economy. The common example is the factory that dumps waste into a river. They get the benefit of the river while people downstream pay the cost of the pollution impacts. Government regulation and taxation of business is an attempt to allocate the cost of polluting back to the business.

In a sense, work safety regulations can be seen in a similar light. While the cost of a seriously injured employee may be inconsequential to a large business, it is devastating to the employee. The cost of lax conditions is disproportionately paid by employees. Regulation, making it costly for an employer to be lax, redistributes the cost back onto the employer who isn’t bearing the cost of their actions.

Now in some less dramatic cases, the market will sift out rotten apples on its own. Maybe you saw the recent case where some guy tried to sue a dry cleaner for $60 million because they lost his pants and they had a “satisfaction guaranteed” sign in the store. The solution here is that if the store does this very many times they will lose business and close. The market will resolve the problem without serious consequences to customers. However, if the failure to deliver on a good or service results in loss of life or limb, or in substantial financial loss, then it is to societies benefit to have additional safeguards that limit these events from happening.

So we can look at regulations on a case by case basis and ask what is the proper solution? I’m not making a case for “unfettered” or “unbridled” capitalism. My issue with the minimum wage is, where is the externality that government has a legitimate interest in correcting? Where in American are people forced to work for any wage? If an employee doesn’t like the wage offered by and employer, what prevents them from finding another employer who will pay them better? If they can’t find another employer locally what prevents them from moving to another location to find work? If they still can’t find work, what prevents them from acquiring skills that will garner more income?

I don’t see the minimum wage as correction of an externality. I see it as a measure to coerce one segment of society, namely employers, to shoulder the burden of a public policy agenda of helping people live above poverty. In so doing, it distorts market signals and damages the economy.

RonMcK said...

I am sorry for taking so long to reply to your questions, but different time zones do not help. By the time I get home from work (for well more than the minimum wage), you are asleep.

Israel tended to evil, because the Holy Spirit had not been poured out on all believers, so it should not be the norm for the current age. Yes, I do expect good to rise to the top in a society where 80% of the population is Christian and half attend church on Sunday. If all Christian employers paid generous wages, then other employers would have to match them to get good staff. If it is true as you say that American Christians are so depraved “when it comes to greed and oppression” that they can no longer hear the voice of the Holy Spirit, then changing a law will not achieve much. If things are that bad, then I fear for your nation, as judgment cannot be far away. Rather than looking to the politicians, you should be calling for the prophets to arise.

On the more substantial issue, I am pleased that you see a continuity between the OT and NT and place an importance on biblical law. I start with the position that God’s law is holy, spiritual and good. Human political laws will be inferior by comparison.

A key feature of God’s law is that it does not try to do too much. It restrains the worst evil, but that it all it can do. It cannot get rid of all evil, and it certainly does not make people good. God’s law is humble. I have a more detailed discussion of this issue here and here.

With respect to economic issues God’s laws prohibit theft and using force against other people. Wages should be paid promptly and false scales should not be used to cheat people and God’s people should make voluntary interest free loans to those who are poor. However, there is nothing in God’s law that says that judges or politicians should set wage rates, or the price of anything else. Therefore, minimum wage rate laws cannot be justified from God’s law. In my view, they are another humanistic attempt to more than law can do.

I am not an anarchist. I am an advocate of God’s law, because it is perfect. I take seriously the command in the Psalms that we should love God’s law. I am opposed to human laws. I am especially opposed to human laws when they are dreamt up by Christians, who want to force non-Christians live by Christian principles.

I believe that loving God’s law is the key to wisdom on social issues. One reason that we struggle to deal with social issues is that most Christians hate God law, but love political laws. Most Christians have far more faith in human laws, than they have in God’s law(for restraining evil).

fanuv24 said...

Since I think this discussion might have been engendered in the first place on account of a post on my blog, which my buddy Bob replied to, I'm going to weigh in with a question, as a layman who hasn't thought deeply through all of the ramifications of the current laws regulating business that we have on the books. Bob said,

The minimum wage is merely one of the many employment and labor laws that have been created to protect the worker. These laws have been meant to stop unscrupulous employers from their exploitation of workers. Are we not supposed to pass laws so that employers are required to pay overtime, or provide meal breaks, or create standards for health and safety, or protect workers from being fired if they speak up or trying to organize themselves in order to create a better workplace?

Bob, my question to you is this: let's take overtime laws. Can you envision those laws having any negative effect on employees, on the poor? Because I certainly can, but I'd like you to rattle it around and see if you can. I'd suggest that we can find negatives with each of these things, maybe not that are apparent at first glance, but that upon closer inspection, might prove them not to be what they're cracked up to be, and issues that the market could deal with if left to itself. Overtime laws seem like an easy one; have a go at it.

Lewis said...

I stumbled across this discussion a few minutes ago, and I wonder if I might take a stab at fanuv24's question, to wit, whether overtime laws are positive/negative for employees?

The short answer is that minimum wages laws and overtime laws have nearly the same effect: raising some labor above the market price, and therefore lowering the employer's demand for the labor.

Let's say employees at Joe's Grill are paid $10 an hour. Let's say that overtime laws dictate that employees must be paid $20 an hour for every hour worked beyond say, 40 hours a week.

If any employee wishes to work more hours than the government's quite arbitrary limit, unless his labor is worth more than $20 an hour to his employer (unlikely, if he was hired for $10 per hour), he's not going to get the hours. If he's hard up, and needs more than $400 a week, he'll have to get a second job. Overtime laws have priced his labor out of the market, and he's unable to get employed.

I've seen this first hand. I used to work at a "Joe's Grill" type place, and some of the lower skilled employees had to hold down two or more jobs--even though there was plenty of work for them at the Grill. Employers found it cheaper to hire more people part-time than to pay the dishwashers the overtime wage.

fanuv24 said...

Bingo, Lewis (although I was hoping Bob would come to that). It is merely arbitrary that hour 41 is 50% more valuable than hour 40, and what of the single guy, say, who wants to work a lot of hours to pay off a school bill. Unless he's working at a place that is willing to pay him overtime (and sure, some do, but many wouldn't), he'll have to get a second job, perhaps have to juggle schedules, have to drive a different place---all of which creates hassle and, generally, cost.

I'll see that answer and raise you: I don't think we need OSHA anymore, if we ever did. I could possibly be persuaded that at one time, something such as OSHA was needed, but now, in this age of ever-present media and "watchdog" groups, do we really need the government policing, particularly when we all know too well that government tends toward one-size-fits-all solutions and ever-increasing regulation. And, of course, the effect of those things is further burden on small business, and further burden means decreased profit (we all know of businesses that are so saddled with government-issue paperwork that they have to hire people to do nothing other than fill out bureaucratic busywork paper).

And who gets hurt? In the end, the little guy and the poor. Liberal "solutions" sound nice, but rarely work in the real world.

Bob Robinson said...

Wow. This has really been an excellent conversation (both here and over at The No Kool-Aid Zone).

The reason this came about is this:

I am automatically suspicious when those in economic power make statements that effect those who are not in economic power.

This is why, when Byron (fanuv24) stated on his blog that "nearly 90% of economists agree (assumedly, all but the most rabidly-liberal among them) that the existence of minimum wage laws destroys entry-level jobs," I started my research to see if this is in fact true.
When someone throws the "liberal" label on somebody else or their policy positions, it is a sign to me that something is fishy. It's an easy way to demean, especially in the snearing way it is often used by those on the Right.

When I found that, especially and particularly on the issue of the Minimum Wage that there is a new and growing disagreement with the traditional view among economists, and that some of the most respected economists were actually signing their names to The Economic Policy Institute's "Raise the Minimum Wage" campaign, my red flags started really waving.

So, I wrote a comment over at Byron's blog and copied it here as a post.

The comments both there and here have really been excellent and helpful.

Bob Robinson said...

Ron,

I appreciate your insight that "loving God’s law is the key to wisdom on social issues. One reason that we struggle to deal with social issues is that most Christians hate God law, but love political laws. Most Christians have far more faith in human laws, than they have in God’s law." Well said.

I'm curious about this statement: "I am an advocate of God’s law, because it is perfect. I take seriously the command in the Psalms that we should love God’s law. I am opposed to human laws. I am especially opposed to human laws when they are dreamt up by Christians, who want to force non-Christians live by Christian principles."

I think I understand what you're saying, but it may be misconstrued. Does this mean that you oppose speed limits since these are man-made laws? Or anti-trust laws since they are man-made laws? How about government regulations on pollutants? How do we bring God's Law from way back in the biblical times into applications that did not exist in biblical times?

Also, are you strictly opposed to Christians seeking to pass laws that would be for the common good? I can see and understand opposition to Christians pushing for legislation simply on saying "Thus Sayeth the Lord," but what about legislation that we know is best for society and for which we provide honest and compelling reasons for such laws to be passed (say, laws concerning child pornography or pressuring legislation for relief in Darfur as examples)?

RonMcK said...

Bob
You have actually understood me very well.

A major problem with human laws is that they encourage mediocre behavior. Because they provide a minimum standard for everything, people live just within the law, rather than thinking about what they should do. People drive to the speed limit, rather than thinking about the driving conditions. Employers just pay the minimum wage, rather than thinking about what their employees are worth. Business people just do the minimum the law allows rather than thinking about what is right in their situation.

Human laws also have unintended consequences. Many laws like (like anti-trust laws) are passed to correct problems created by other human laws.

However, these are not good arguments, because they are technical arguments about what will work and what does not work, whereas this is a moral issue about what is right and wrong.

The scriptures say that God’s law is perfect. It is perfect in the principles it enshrines. People have not changed. The principles are still the same. The only thing that has changed is the technology. However, it is not that hard to work out that the law about a flying axe head, also applies to a speeding car. So the issue of translating into a modern environment is not as big a problem as we think.

I presume that God’s law is also perfect in its coverage. God was quite specific. He said to Moses, “These are the laws that you must obey”. He did not say “These laws will do for now, but you will have to expand them as society becomes more complex.” God did not tell Moses to add more laws for the common good when you move into cities. The prophets never told the kings to add to God’s law for the common good.

God gave a lot of detail in his law where that was appropriate. He specified the difference between manslaughter and murder with examples. He specified that setting fire to your neighbor’s wheat is the same as stealing it. Because God was so precise with the detail, I assume that he was precise with the coverage as well.

Because people have not changed, all of the behaviors that you want to legislate against existed in Moses time, even if they manifested in a different way. There would have been mean employers, but God did not legislate minimum wage laws. I am sure some people drove there donkeys through the camp in a dangerous manner, but God did not impose speed limits (Note, he made the owner of a bull accountable for any damage it did, he did not put in place speed limits for bulls). There would have been monopolies in Moses time, but God did not give anti-trust laws. So if God's law is perfect, these extra things are not part of a perfect system of law. On the other hand, if a whole lot of extra laws are necessary for the satisfactory functioning of human society, then we cannot claim that Gods law is perfect. I prefer to believe that God got the coverage of his law right.

Business is not new. There were plenty of business in Moses time. However, according to God’s law, provided they did not steal, or assault people, or kidnap people, or murder them, business people could just get on with their businesses. If a whole lot of laws about how business should behave are necessary, why did God not give them?

I am interested that God promised that if his people implemented and kept his law, then society would be blessed (Deut 28:1.2). God did not say, if you keep these laws, and introduce a whole lot of others for the common good, then you will have a perfect society. If that is true, then Deuteronomy 28:1,2 is wrong. I am not willing to accept that. The irony is that we have now had a century of hard out legislating by full-time legislators, legislating for everything that moves. However, rather than moving towards a perfect society, things are getting worse. This suggest to me that the belief that God’s law + laws for common good= perfect society is not true. If we are really worried about our society we should go back to Deut 28:1,2, while not forgetting the gospel which makes it achievable.

Isaiah said, "The LORD is our lawmaker" (Is 33:22). I believe what Isaiah said, but I presume most modern Christians would say, “Okay God did make some laws, but he did not understand modern society. Congress is our Lawmaker.”

For me the issue is not do we ne need minumum wage laws or speed limits, but is Gods law good and perfect. Once that issue is settled then everything else has to follow. Before you can add a whole lot of laws for the common good, you have to demonstrate that God's law was perfect, but incomplete. You have to prove that God's law is good, but is not enough for the common good. I cannot see that in the scriptures.

Ron

fanuv24 said...

Sure, Bob, "liberal" can be used to demean (as can "conservative", in some circles, of course), but sometimes it is useful to speak in such generalities (we could hardly communicate without them from time to time, with the necessary understanding that there is room for qualifications). But enough of that...

I guess I'd make a couple of points: one, some economists have signed on to raising the minimum wage---this is to be expected, because unanimous agreement (some would say "particularly on economics") is difficult to achieve. But my question would be, by what LOGIC do they arrive at this position? I think we've laid out the basic logic behind opposing the minimum wage; on the micro scale, it's almost unassailable logic to see how minimum wage causes harm; why would it not work out on the macro scale? It's one thing to sign a declaration; it's another to explain logically and consistently how your position makes sense.

Two, do you see our points (Lewis' and mine) about overtime laws, how they are not nearly so self-evidently a good thing as your post seemed to suggest? And that said, might it be possible that some other such "common sense" workplace regulations might not be so "common sense" as they appear? Just askin'...

Lewis said...

Byron:

An economist once criticized OSHA (and all other Federal laws regulating “minimum standards” for businesses) by noting that “business” is composed of two parts: “earnings” (or income) and expenses. A business is profitable if its income exceeds its expenses. Expenses are usually divided into two piles: “labor” (the employee’s wages) and “overhead” (building costs, resources, equipment, etc.). Obviously, the greater the cost of one of the expenses, say, overhead, the less money there will be to spend on the labor. And vice versa. If labor costs rise, and the income stays the same, then the business will be forced to cut its overhead, or go OUT of business.

Let’s say that Joe’s Grill’s income was $10,000 a month, and its expenses were $6,000 in overhead and $3,000 in labor, leaving $1000 in profit for the owners. Now, let’s say that OSHA passes a new regulation requiring all restaurants to upgrade their smoke detectors, dishwashers, and floor tiles to increase employee safety. Overhead costs jump to $8,000 a month, and the only way to remain profitable is to cut labor expenses. Either X amount of people lose their jobs (or take a salary cut), or the business goes under. OSHA costs employees their jobs.

The problem with government regulation is that it blithely assumes that compliance is costless, and that employees who voluntarily contract to work in a less-than-perfectly safe (and who decides, exactly, how safe the job place should be?) environment are “being taken advantage of” and “need to be protected.” The fact that “protection” often means “losing your job” never seems to occur to legislators. Someone has to pay for the upgrades.

Overhead costs and labor costs are trade-offs. The balance between them is a decision that should be left to those actually affected by the choice, not to insulated bureaucrats. If employees would rather trade-off some of their salary for a less hazardous work-place, fine. If they’d rather not, that should be their decision to make.

fanuv24 said...

It's called "freedom", Lewis, a beautiful thing, my friend. Pity that so many bureaucrats in the "land of the free" miss the concept entirely.

Bob Robinson said...

Byron (fanuv24),

(1) You write, "But my question would be, by what LOGIC do they arrive at this position?"

Again, I point you to the two links in this post. By what logic? By the data of these studies. One article is entitled, "Higher Minimum Wage No Longer Seen as Sure-Fire U.S. Job Killer" and the other article is entitled, "States with Minimum Wages above the Federal Level have had Faster Small Business and Retail Job Growth."

This is not pie-in-the-sky liberal mumbo-jumbo. These are the logical conclusions of these economists' studies. Why would these economists sign this declaration? It's simply because they are convinced that to do so is the logical conclusion to their expert opinions. To belittle that is just merely using rhetorical argument.

(2) Of course I agree that merely saying that something is "common sense" is not enough to favor things like mandatory overtime pay. This is the same (on the flip-side) as my point above. Simply because it seems to be "common sensical" to believe something does not make something true. Your case for mandatory overtime has a lot of merit.

Bob Robinson said...

Ron,

Thanks for your detailed explanation of your theology of law. Good stuff.

I think we both agree that there are real challenges in applying God's Mosaic Law to a Representative Republic and to a Capitalistic Economy, both of which are novel things that did not exist in biblical times.

Bob Robinson said...

Lewis,

In a black-and-white world with no grays, I would accept your argument. But nobody in their right mind would suggest that we should have "government regulation that blithely assumes that compliance is costless." When it comes to work-place safety, for instance, the cost of too many regulations must always be weighed. But to see it as black-and-white (that the only choice is to have government regulate EVERYTHING or to have government regulate NOTHING) is to set up a false dichotomy. I am certainly not advocating an all-or-nothing scenario. I think we agree that these issues are much more complex than that.

As Michael Kruse has pointed out (and I agree with), government must prove that it is needed to come in and regulate before taking over a sphere that would or should be handled by another institution. I believe in "Sphere Sovereignty," a term from the neo-Calvinist Kuyperian (especially Dooyeweerd) camp of social structure. Government needs only step in when one of those spheres is acting dysfunctionally and needs public oversight.

In the American setting, this is done through a representative republic, meaning that the legislators are supposed to be accountable to the people for this oversight.

RonMcK said...

Bob
I have been studying and thinking about a Christian approach to political and economic issues for more than thirty years. After going around in circles for a long time, this is where I have ended up.

The New Testament does not provide a description of a political, legal and economic system. Jesus changed a few things, but never gave a full description of what a Christian political system would look like. Paul made comments with a political or economic implication, but he did not articulate a fully developed political or economic system. I can only conclude that it was not necessary for them to do this, because God had already done it in the Old Testament.

When I went back to the Old Testament prophets, I found that they had a lot to say about political and issues, but they mostly focused on what was wrong with the situation which had emerged in their nation. Again the prophets do not give a full description of how a good society should function. They did challenge their people for failing to honour God’s law, so that pointed me back to the law.

When I studied biblical law, I found what I was looking for: a complete set of laws that covered everything, including family life, business behaviour, social welfare, national defence and a system of judges. They only thing missing was guidance about parliaments and law making, but these seemed to be unnecessary, because God is lawmaker and he has already given his law.

This discovery raised an important question. Does this legal and economic system still apply in Christian society? I looked to Jesus and found that not one jot or tittle of the law has fallen away. I went to the rest of the New Testament and found that God’s law is holy, spiritual, perfect and good. So I have to conclude that the political, familial, judicial and economic parts of the law still apply today. The foundation of a good society must be adherence to God’s law.

I note that Jesus fulfilled some laws (sacrifices, scavengers and sabbaths), so they no longer need to be applied. Other laws (Leviticus) only applied to the nation of Israel. Working out which is which is a challenging task, but not insurmoutable.

The next question to be answered is whether God’s law is complete. Clearly his law is good, but if it is not comprehensive, we can add to it to deal with things that are not covered. The issue is God’s Law v Gods Law plus More. From my study so far, I cannot see any suggestion that God’s law is not complete. God never told the prophets or kings to add new laws as circumstances changed. The other problem is that if additions to God’s law are allowable, then anything goes, because the Bible gives no principles for identifying when and what new laws might be needed. So my conclusion is that God’s Law Plus More is not an option.

The final challenge then is to work through how God’s law applies today. That is a big task, but it is something that I want to chip away at. My efforts so far are set out here. I would welcome comments and feedback, because I believe that we will only arrive at the truth by sharpening each other.

Ted Gossard said...

I need to work through this. This is a book.

I really am empathetic to the view that my tax money needs to go less to military expenditures and more to a universal health care as well as helping everyone have the needed basics of life. What kind of society does not think these things are important or is not willing to sacrifice for them? I'm not convinced that our society for all the good that does happen, is one of them. We're too willing to turn a blind eye or forget or else write off in some way, the problems encountered by those less fortunate.

Good discussion and debate here. Thanks, Bob.

Bob Robinson said...

Ron,

Your line of thought here is definitely worthwhile, and worthy of another post. I will definitely go over to your blog and read that post. I have my own thoughts on the role of law in modern societies and its relation to the Law of God for Israel. But I'll share that in a post some time soon.

Bob Robinson said...

Ted,

You've hit the nail on the head, as far as my initial reason for posting here on Minimum Wage. The Libertarians and Fiscal Conservatives will tell us that the less government the better, the less governmental social help the better. Some automatically equate governmental activity with Marxism, others with Fascism.

It does not need to be that cut-and-dried, black-and-white. Why can we not have a representative republic that seeks the common good? Can we not have a government that seeks that without becoming too socialistic or too authoritarian?

As Ron Sider writes in "For the Common Good: A biblical perspective on the role of government,"
"Frequently the state contributes to the common good by encouraging and enabling other institutions in the community—whether family, church, nongovernmental social agencies, or unions—to carry out their responsibilities to care for the economically dependent. The objective of the state, however, is not merely to maintain equilibrium of power in society. Its purpose is not merely to enable other groups in the society to carry out their tasks. The state has a positive responsibility to foster justice."

Those of us who seek to foster economic justice need to weigh all the evidence for each policy issue before we support it. The Minimum Wage has been trumpeted by many as the way toward this economic justice. But, as we have seen in this thread, this may not be the case. The jury is still out for me. The commenters so far are clearly against it.

The deeper question, as I think this through and need to explore it further, is this: What economic rights are fundamental human rights, especially in a country as wealthy as the United States?

This should be something we discuss some time soon as a good follow-up to this post. I'll work on that.

fanuv24 said...

Bob wrote:

Why can we not have a representative republic that seeks the common good? Can we not have a government that seeks that without becoming too socialistic or too authoritarian?

The optimist in me would agree with you, Bob, but the realist/cynic in me says, "that's just not possible". I don't trust government, not this government, not any government. Power corrupts, and absolute power corrupts absolutely. That's as good an argument as any for placing strict limits on government (that, and the fact that the Constitution, strictly interpreted, would seem to demand it). Government is necessary, but it's clearly a necessary evil. The less of it we can manage to have, the better off we'll be. While I don't trust liberal politicians any further than I can throw Barney Frank, I do believe that a whole lot of liberal laypeople mean very, very well; I just think that trusting government is misplaced trust, that government cannot accomplish much of anything very well, and that the private sector can pull off most anything better than the government can.

When Bush's immigration bill was first announced, I honestly took a wait-and-see position; I tried to be optimistic, I really did. But I was eventually won over to opposing it by virtue of memory: the government hasn't done what it said it would do vis a vis securing the borders, so why should we trust it this time to do what this bill says will be done? It's not that I'm unwilling to consider some form of amnesty for illegals; heck, I'd consider supporting that, but my trust in government is so abysmally low that I'm not going to sign onto this thing that tries to accomplish so much, when the government is unwilling to take more modest steps. Secure the border once and for all, then come back and we'll talk. And I think that a similar, pessimistic mood is what motivates so many folks.

Rambling. Sorry. It's just hard to believe government makes much of anything better.

fanuv24 said...

Oh, and by the way, Ted, I think that you're asking the wrong question when you're asking about "what kind of society doesn't helping people get the basics of life is important". I'd agree in the abstract with your sentiment, but the automatic assumption that you seem to make is that government is the best means by which to make this happen. The better question would be, "what kind of structure should be in place so that we most effectively are able to help people get the basics of life?"

Many of us are quite convinced that government, despite Ron Sider's (misplaced) optimism about the state's "frequent" contribution to the common good, does a lousy job in accomplishing this. I continue to trumpet Marvin Olasky's The Tragedy of American Compassion as essential reading on this issue, helping us understand that government "solutions" are anything but...

Michael Kruse said...

Wow! This conversation is still going. Cool!

Some of what I had hoped to raise in my earlier comments was an awareness that there are costs, not matter which decision you make about how to solve problems

We Protestants could learn a lot from the Catholic notion of subsidiarity:

"The principle of subsidiarity holds that government should undertake only those initiatives which exceed the capacity of individuals or private groups acting independently. The principle is based upon the autonomy and dignity of the human individual, and holds that all other forms of society, from the family to the state and the international order, should be in the service of the human person. Subsidiarity assumes that these human persons are by their nature social beings, and emphasizes the importance of small and intermediate-sized communities or institutions, like the family, the church, and voluntary associations, as mediating structures which empower individual action and link the individual to society as a whole."

There is a cost to having people not earning a wage that keeps them out of poverty. But there is also a cost to solving this problem with a government mandate. First, government intervention tends to atrophy the ability of mediating institutions (family, church, voluntary associations, schools, etc) to be able to respond to needs because responsibility for taking care of those needs has been removed from them. Second, because the government has its political interests at heart more than any one individual’s interests, the tighter knit community that exists with mediating institutions will much more often deal more compassionately or discerningly with individuals. Eliminating mediating institutions tends to lead to all manner of abuse and dysfunction. Third, people develop a dependency on political entities that use their dependency for other ends.

My point isn’t that there is never a case for government intervention or involvement in these circumstances but rather that government involvement usually comes with a very high social cost. Furthermore, I am suggesting that we need to abandon binary thinking: Market vs government. We need to think holistically in terms of society with an array of institutions instead of just these two. Some form of Kuyperian thinking is needed.

What gives me pause is that when we come to questions like living wage, there is a profound tendency to view the government as the primary player in addressing the problem with other institutions playing a minor or supporting role. It is my position that we should be thinking of the mediating institutions as the primary players with the government in the supporting role. I want us to really count the social cost of the policy decisions we make.

Michael Kruse said...

The subsidiarty link above was:

http://en.wikipedia.org/wiki/Subsidiarity

Bob Robinson said...

Michael,
I am very familiar with the Catholic notion of subsidiarity, and I find it very helpful in these kinds of debates. Thanks. I highly recommend everybody to read up on this as a way forward.

It is a notion related to the idea of Sphere Sovereignty that I mentioned in a comment above to Lewis.

Ray Pennings, Vice President for Economic and Policy Research at the Work Research Foundation has written a number of helpful articles on the subject of Sphere Sovereignty. Here's a couple of them:

Sphere Sovereignty 101

Kuyper's Sphere Sovereignty and Modern Economic Institutions

Lewis said...

Bob:

True, we don’t live in a “black and white” world; my previous post was simplified.

You noted that, ideally, government should only step in when the market sphere is acting “dysfunctionally.” Basically, the market works on two rules: 1) do all that you have agreed to do (binding nature of voluntary contracts), and 2) do not encroach upon others (i.e., do not inflicts costs upon or harm the innocent). If either of these rules are violated, a case could be made for 3rd party intervention—namely, the government.

But does the existence of “hazardous work environments” necessarily mean that either of these rules have been violated, i.e., justifying government intervention? I do not think so.

As I pointed out in my previous post, there is a basic trade-off between “safety” and “wages”. The more money that a business has to spend on regulatory compliance, the less it has to spend on other factors—such as labor.

Different people have different “trade-off” levels. A muscular Texan might be willing to accept a higher level of physical risk in his outdoor construction job—in return for a higher wage—than, say, a tiny, 85 lb woman. I have a very low tolerance for heat, so I would be willing to trade-off a certain level of salary for good air-conditioning in my office. Others might feel differently.

The point is that all of these preferences are individual and subjective. There is no “one size fits all” regulation that would match all of them while imposing no additional costs on employees. Back to Joe’s Grill, government regulations imposed a cost on the employees. Either some of them lost their jobs altogether, or they collectively earned less. Some employees might think this a good trade-off. Others might not. The regulations have enforced X% of the employees preferences against the preferences of the remaining X%. By what right did the government make that decision?

In the free-market, no one is coerced into taking a job. If an individual felt that the environment was too hazardous, no one is forcing him to take the job. He is free to either search elsewhere or bargain with the employer to improve working conditions. And the absence of an OSHA does NOT mean that employers will take advantage of their workers by neglecting their safety. Employers realize that no one wants to work in a hazardous environment (although everyone has a different interpretation of the word); in order to attract employees, they will need to make the work environment attractive. We do not need the government to “force” businesses to care for their employees; the desire to make a profit is sufficient.

I guess the sum of my argument is that “safety” is a subjective word. Regulating “safety” means that the government imposes its own subjective standard irrespective of the wishes of others (even if 95% of employees approved the standards, does that make the enforcement of their wishes against the wishes of the remaining 5% right?). This regulation has a cost—which is NOT borne by the regulators. Doesn’t it make sense to leave the safety trade-off to freely contracting individuals?

sonja said...

Wow ... I just came over here from Jesus Creed. Amazing conversation.

There are some assumptions here that seem to have gone unchallenged. First off, I'd guess that all the commenters here are white and male, because none of you has ever had a problem negotiating a higher salary or holding a job. Most of your market place assumptions are made in theory and do not take into account the prejudices and contexts that people of color and women must negotiate. This changes the playing field dramatically when it comes to salaries as has been well documented.

I was intrigued by this statement early on in the conversation:

I submit that businesses have a responsibility to pay fairly negotiated wages and that broader society has the responsibility for aiding those who are unable to close the gap between what they earn and the poverty minimum.

I don't remember who made it, so I apologize for not giving credit where it is due.

In our country, economics and politics are closely interwoven. We do not live in a clearly free market economy. Because of the political system we chose when this country was founded we cannot. Since the broader society has the responsibility to ensure that the gap is closed between earnings and poverty minimum, we have chosen to do this by legislating a minimum wage. The broader society through it's representatives in Congress and state legislatures enacted minimum wage laws. That is our representative system of government at work. We cannot now claim that "someone" else did it as if aliens came in and made laws for us to follow.

The minimum wage is no protection against poverty. Someone earning the minimum wage is still below the poverty line. We all pay for poverty ... we all pay higher medical bills for emergency room visits, for example. It is in our economic best interests to eliminate poverty as well as being our Christian duty. These laws are a response to the outrageous behavior of business during the years leading up to the collapse of 1929 and the following Great Depression. We cannot simply view economics in a vacuum, but it must be viewed with the lens of history and why decisions were made. Until we begin looking at the sweep of time and begin tracking the consequences of our decisions we will continue to make the same mistakes over and over again.

Ted Gossard said...

fanuv24,

I think the answer is across the board but yes, I do believe that government will be judged by God on the basis of how it treated the poor and those down and out. Nations are not theocratic, yet they are still accountable to God. And also for their propensity for war and what happens in that: God weighs and judges all of that.

Ted Gossard said...

In this discussion I pick up the notion that systems can bring guaranteed results. I also picked this up in a debate at Calvin Seminary in the position of Robert Sirico (whom the attenders seemed to favor) in his debate with Ron Sider.

But the problem comes with human greed. I have a hard time seeing any system as foolproof in stopping the more important relational and potentially covenantal aspect of what ought to go on in societies. This I believe is why laws like minimum wage need to be in place.

Ted Gossard said...

And lest I look like I'm defeating my own argument: in a fallen world with sinful people in which greed is a part of life (in the name of "the American dream" quite often), to depend on people to do what's right and live correctly in a system, I believe is mistaken.

We need some safeguards within freedom.

Shauna said...

I appreciate this discussion and the thoughtful explanations that the commenters have given for their views of this complex issue. My state (Colorado) recently passed an amendment that raises the minimum wage and adjusts it annually based on the CPI of the Denver-Boulder area. I was opposed to this measure for many of the reasons cited in this thread, but to hear some people talk, the only possible motivation one could have for voting against it is a lack of compassion for the poor.

Michael Kruse said...

Hi Sonja,

I think I was the one that wrote:

“I submit that businesses have a responsibility to pay fairly negotiated wages and that broader society has the responsibility for aiding those who are unable to close the gap between what they earn and the poverty minimum.”

You wrote:

Since the broader society has the responsibility to ensure that the gap is closed between earnings and poverty minimum, we have chosen to do this by legislating a minimum wage.

I think you missed my point. Representative government “solved” the problem by using the coercive power of the state to compel employers to pay unskilled workers more than they economically contribute to a business. In a “sphere sovereignty” sense, businesses exist to effectively and efficiently employ the means of production (land, labor, capital, knowledge). Compelling employers to pay workers more than the productivity they contributes saddles business with the role of poverty reduction.

Economic exchanges are also information exchanges signaling supply and demand information throughout the economy. Half of min. wage earners are in households with more than $40,000 a year income. Only 15% are in poverty households. Therefore, the minimum wage may help some workers but it creates an even larger distortion by intervening in wages of the 85% who are not in poverty. If our concern is poverty, why not take measures that actually target people in poverty instead?

Why are businesses, with their limited sphere of service, being compelled to double as social welfare agencies? Why not give tax credits to businesses that higher unskilled workers, improve education opportunities, develop organizations that equip people with life skills to better manage their lives, or a host of many other options? Why is it business’ responsibility to do this?

You wrote:

It is in our economic best interests to eliminate poverty as well as being our Christian duty.

I couldn’t agree more but the options are far more diverse than min. wage. And I would suggest that other options may be more holistic and respectful of what different institutions in society can best offer.

Michael Kruse said...

Ted, you wrote:

"I do believe that government will be judged by God on the basis of how it treated the poor and those down and out."

This is the language that worries me. :) I do not believe governments will be judged. I believe societies will be judged. Government is but on institution of society. It concerns me that we not conflate government with society thus conclude that everytime we society is responsible for something that we equate that to mean the government is responsible for that thing.

Jon said...

I think I see a small problem with the analysis of how minimum wage hurts employees. It is reasonably clear that increases in cost result in decreases in demand, but the degree to which this is true varies based on the good or service being concidered. For example the demand for food as a whole (not luxury food items mind you, the sort of stuff you might see on anyone's table at dinner time) is relatively inelastic. That is to say, if the cost of a meal doubles daily, people are unlikely to significantly decrease the amount they buy until they're unable to pay for the food. Employer's demand for labor is almost certainly similar. The employer's demand for labor is more strongly influenced by the consumers' demand for goods and services than by the cost of labor. As a result the impact of raising the minimum wage on number of jobs and hours worked would almost certainly be constrained by consumer demand. There is still the cost to the employer, of course, but employers can respond in a number of ways to rising costs. They can try to contain them either by cutting hours or cutting pay (the former might be impossible given consumer demand, and in the case of raising the minimum wage the later is impossible except for those making more than the minimum.), letting the costs eat profit (obviously constrained by the actual amount of profit as compared to the new costs), or by raising income by generating new business or raising prices. Of all the options the most sensible course of action seems to me to be a combination of sacrificing profits and raising prices depending on how elastic demand for the provided goods and services is. At this point it might be worthwhile to note the public (non-)response to rising gas prices. It isn't entirely certain, but the non-response almost makes it look like people are deciding how they want to live first and then thinking about how they're going to pay for that lifestyle.

Jon

Michael Kruse said...
This comment has been removed by a blog administrator.
Michael Kruse said...

(Arrgh! Sorry. Failed cut and paste correctly. Here is the whole comment.)

Lewis, I'm sympathetic to you case against OSHA and regulation. Employees have imperfect information when signing on to work someplace. Regulation to prevent grievous injury (making it costly to allow unsafe conditions) shifts the cost of such actions the employer. I think this a legitimate role of government; to shift the costs of externalities within the economic sphere of society. The cost of human life and limb is to high a price to pay for people to learn that they should make different decisions about their employment.

Min. wage is not directed to an externality. It does not target some inequity or externality in the wage/salary market. It indiscriminately sets market prices by fiat.

Michael Kruse said...

Jon, I think you are right about the variable factors involved in what happens with the minimum wage. Other options to some industries would be increased automation and outsourcing tasks to other nations. Also, with higher mandated wages higher for unskilled workers, employers are less likely to take chances on the unskilled, lifting the bottom rung on the economic ladder a step higher out of their reach. This seems to be especially true for urban minority young males. While some companies may not reduce workforces because of min. wage increases they are going to think twice before hiring unskilled workers, thus depressing job growth.

What you are saying is that the minimum wage has a very complex impact. And this is critical point. Planners and policy makers can’t possibly anticipate all the nuanced ways the wage impacts all these different industries. The impact of unintended consequences is high. Some minimum wage earners will be benefited and others harmed. Some industries will benefit and others will be harmed. It may even be true that on the aggregate that a majority are helped. But 85% of min. wage earners are not poor. So it is entirely possible to aid a sizeable majority while having little or even negative impact on the poort.

Instead of intervening in the market and distorting it ways we cannot possibly foresee, why not intervene with the poor with policy that is directed toward the poor?

Michael Kruse said...

BTW Bob, thanks for the links on subsidiarity and Kuyper. I've been looking for some good summaries of these ideas.

Bob Robinson said...

Sonja,

Thanks for your input. You said, "First off, I'd guess that all the commenters here are white and male, because none of you has ever had a problem negotiating a higher salary or holding a job. Most of your market place assumptions are made in theory and do not take into account the prejudices and contexts that people of color and women must negotiate. This changes the playing field dramatically when it comes to salaries as has been well documented."

This is one of the major factors in this issue. How do we create fairness in wages for those who suffer systemic injustice? Minorities and women still suffer inequity in wages earnings.

Lewis said...

Michael:

I agree that employees have imperfect information about possible hazards. Furthermore, the time and knowledge costs for them to be properly informed can be huge. “Regulatory” agencies can provide an important service by fulfilling this role.

But my argument was against fiat regulation; i.e., regulation that is binding upon all businesses, regardless of their desire to be so regulated. The free-market alternative would be strictly voluntary; certain agencies would establish safety criteria, and businesses could choose to comply with them or not. If certain agencies develop a reputation for exceptional standards, a business could earn a higher profit by complying with (and advertising it!) its standards.

There are numerous free-market examples of this already. Think of innumerable agencies devoted to testing and rating consumer products. There’s the Forbes 500 list. There’s the excellent example of the customer rating system used on websites such as eBay and Amazon Marketplace. How about the Barnes and Noble aisle full of “Guide to the Best Colleges” or “America’s Top Law Schools”?

Bob Robinson said...

Ted and Michael,

Michael points out above, "Half of min. wage earners are in households with more than $40,000 a year income. Only 15% are in poverty households."

This may very well be true. Those who favor a minimum wage hike are thinking more of those who are suffering a systemic economic injustice - that of being forced to work for a wage below the poverty level while corporate profits continue to climb. Between 1968 and 2004, domestic corporate profits climbed 85 percent while the minimum wage fell 41 percent and the average hourly wage fell 4 percent, adjusting for inflation. In the retail sector, which employs large numbers of workers at or near minimum wage, profits rose 159 percent in the same period.

As Ted said, "The problem comes with human greed."

It seems that the Minimum Wage is meant to curb the greed inherent in our free market system.

Jon said...

Outsourcing is far more likely to be a problem in industries which produce goods. Services, like cleaning buildings, stocking shelves, and washing dishes essentially can't be outsourced, at least not in such a way as to avoid minimum wage laws. At the same time it is very difficult to get skilled workers to take essentially unskilled work like stocking shelves. The turnover commonly seen in retail and other low paying jobs also militates against finding a significant number of people with significant experience is the specific type of job, since those who leave one store are likely to be doing so because of unhappiness with the job itself. This would tend to keep a great many low paying jobs open to the unskilled workers. Turnover is also relatively high in a number of jobs that make only slightly more than minimum wage (night stockers for example), so raising the minimum wage is also likely to push up those jobs as well, although probably not as much as the minimum wage was increased.

Complexity isn't a particularly good reason to avoid taking action if there is reason to expect it to address some problem that is already extracting a high price. Granted we must always keep a sharp eye out for the unintended consequences, but if a system is sufficiently complicated it tends to either be self-stabalizing or dead due to some positive feedback loop.

What policies directed at the poor might we try other than raising minimum wage? Encouraging and financing education doesn't create jobs (outside of the field of education), and the proliferation of more educated people tends to decrease the value of the education in favor of experience. Of course we could simply provide more money in welfare checks, but I don't see that that would really do much to address the root causes of poverty.

Jon

Michael Kruse said...

Bob you wrote:

“…being forced to work for a wage below the poverty…”

In closed or semi-open societies you could make a case that minimum wage is necessary because the worker has no freedom to choose other options. Where in a free society like the US do we see workers “forced” to work for a poverty wage? Are they in chains? Are there hit men who hunt them down if the look for work elsewhere? Does the government hunt them down and throw them in prison if the seek other options? Through the First Step Fund (http://www.buildasitefactory.com/index.php?id=1340), I have worked with more than 100 disadvantaged people (most living in Section 8 housing) to develop feasibility plans for starting their own businesses. Several of them are up and running and even employing other people who didn’t have jobs. Where in America are people “forcibly” prevented from pursing self-employment? Where are people prevented from developing employable skills? Where are people being prevented from moving to locations where their labor is more in demand?

Second, for issues of poverty, the appropriate concern is not the distance between the floor (bottom standard of living) and ceiling (high standard of living), nor is it about how high the ceiling is. The question is, how high is the floor? Our poor live at standards far above middle and even upper income people in some regions of the world. Winston Churchill said, “The inherent vice of Capitalism is the unequal sharing of blessings; the inherent virtue of Socialism is the equal sharing of miseries.” And for my money “Socialist” can be expanded to include any traditional, socialist or other system that manages markets.

So far we have seen two types of societies in history. One where there is bare subsistence poverty spread across the vast majority of people and a tiny fraction with great wealth. The other where there is a much wider distance between the floor and the ceiling but there is pretty much a bell curve distribution between the floor and the ceiling; and the floor is much higher than the standard of living for all but a few in the first option.

The gap between the floor and ceiling varies for different reasons and I would suggest that the reason for much stagnation at the floor in the US is that the expansion of the ceiling has come from productivity gains coming from technology. There is a tendency for the economy to oscillate between expansion through technological improvement (depresses wages) and hiring more labor (which drives wages up). I reject the notion that the sluggish rise in wages was caused by greed. That is a discussion for another day. My main point is that the distance between the floor and the ceiling is a separate question from the issue of how we help people live above the poverty line.

Third, you wrote:

“It seems that the Minimum Wage is meant to curb the greed inherent in our free market system.”

Let us be very clear here about “greed inherent in our free market system.” This is a (I think) malicious half truth. Greed is inherent in the human condition. Greed exists in every economic system because they are human entities! What I find malicious in the statement is what I detect as an assertion that free markets are based on greed. That is categorically false. Market systems are based on win-win situations where people make mutually beneficial exchanges. I part with my money to buy a product because I value the product more than the money I am parting with. The seller parts with the product he has to sell because he values my quantity of money more than he does retaining the product. Markets channel greed toward productive ends. If you want to make a pile of money you have to offer goods/services that people will pay for. You will be compelled to do productive work to get riches. If you don’t pay your workers well enough you are not going to be able to offer the quality of goods/services that will attract customers’ dollars and fulfill your greed.

Finally, I’ll make one other comment here as well, because I have had enough of these discussions to know exactly how some are reading my comments. They are hearing me say that free markets (and that does not mean totally “unbridled” any more than “free speech” means totally unbridled) creates a near utopian world. It does not. Critics are going to point to this or that outcome that occurs in a free market economy and compare it to the coming reign of Christ and say, “See! It doesn’t match life in the coming New Creation. We must abandon it for ways that produce a more Christ-like outcome.” This thinking is exceedingly misguided.

The only time we will live with the peace and just of the New Creation is after Christ returns. There is no economic system we can devise that achieves a New Creation existence. Period! The question is what system creates the greatest amount of economic freedom and prosperity, and minimum amount of injustice, based on scriptural imperatives and accumulated human wisdom over history, this side of the New Creation? I’m making the case the market economy is the system that best answers the question, and the fact that it does not create a New Creation utopia is a red herring.

Bob Robinson said...

Michael,

We'd like to think that the US economy is an open system in which people can freely choose to make choices about training themselves for employable skills, and that they can easily move to locations where their labor is more in demand, but that is not what we see in the reality in the streets. When Katrina hit New Orleans, we learned about how this was a "semi-closed system" in which minorities lived in poverty because of systemic issues to due with employment. Blacks and women continue to not have opportunity because of systemic injustice.

Bob Robinson said...

I do not believe "free markets are based on greed." I agree that "market systems are based on win-win situations where people make mutually beneficial exchanges."

I also agree that government must remain within its own sphere of sovereignty and not infringe on that of the sphere of business unless business impedes on the other social spheres (like family or trade unions).

There's a legitimate fear that the state will overstep its line of sovereignty and becoming too authoritarian. But what we need to grapple with is a rather new thing that is overstepping the line and becoming too authoritarian: And that's consumerism. This authoritarianism has grown not from the socialist camp but from the individualist camp. What can we do as a society (ans especially as Christians) to break the authoritarian empire of consumerism? Are workers merely to be seen as "human capital" for the end of creating more consumer goods? Should everything in economic debate be truncated to the issue of consumption? How does the empire of consumption intrude into the other spheres- home, school, community, sport, the arts, etc.? In the name of capitalism and consumerism, can it be right to exploit workers in the Third World to keep profits high and prices low in affluent countries? Do these exploitations of workers happen here in the United States? If so, is it okay, since we live in what's believed to be an open, free, marketplace?

Bob Smietana said...

Dear Bob,

I'm not an economist but for the past year have been working with an economist from Baylor called Good Intentions, which looks at issues like minimum wage.

A couple thoughts. The Earned Income Tax Credit seems to do a better job than a higher minimum wage when it comes to helping poor families. That's in part because the EITC focuses on poor families, rather than the minimum wage, which goes to all low wage workers, regardless of family incomes. (So the minimum wage also raises the wages of teenagers who are working for gas and spending money, for example). So the EITC ends up being a better tool to act out our beliefs. And there is some jobs loss with higher minimum wage--mainly among poor minority men. So they are worse off, while other poor workers are better off. The EITC doesn't cause the same job losses.

Long term, one of the best ways to address the causes of poverty is preschool. Robert Heckman, a nobel Prize winning economist from the University of Chicago did an article for the Ounce of Prevention Fund that helps explain why.

Preschool helps build what's known as human capital--especially a set of skills that allow kids to be ready to learn when they arrive at school.

The New York Times Sunday Magazine has run a number of really good articles on poverty lately -- mainly by Paul Tough, one of the editors. (Matt Bai also did one called "The Poverty Platform" that looks at some long term solutions).

Bob Smietana

fanuv24 said...

Bob wrote:

...women continue to not have opportunity because of systemic injustice.

Just ain't true, Bob, just ain't true, though that's "common wisdom". There is no "gender gap" when we read the statistics correctly; women are not discriminated against, held back, what have you, and the only reason that that is "common wisdom" is because we aren't willing to dig very deeply into the statistics.

John Stossel has become a hero of mine, not because I watch 20/20, but because he began as a toe-tag liberal and became, through repeated encounters with reality, a free-market libertarian. In his new book Myths, Lies, and Downright Stupidity, he takes on the idea that women only earn 78.5% of what men do, with the bold truth that it isn't sexism that motivates that fact, but rather the fact that women and men (speaking in generalities) value different things, which causes them to choose different jobs, to leave jobs for different reasons, to act upon promotion opportunities differently, etc. He quotes Warren Farrell, the only man to be elected three times to the board of the NOW, a guy who used to buy into this notion about women earning less. Farrell "spent about fifteen years going over U.S. Census data and other studies. He found that the wage gap exists not because of sexism, but because more men are willing to do certain kinds of jobs."

Men tend to take jobs that require longer hours, the taking of more safety risks, frequent travel, long commutes, etc. Men value money more highly than do women, who tend to value other things (flexibility, etc.) more highly than do men. Women are more balanced than men (a good thing!).

If women can do a given job equally as well as a man can, do we seriously believe that there is a huge contingent of employers willing to pay substantially more to employ men just so they can hold onto their prejudices?

No sale. We need to read the data a heck of a lot more carefully.

fanuv24 said...

On another note, Bob, this idea of the "exploitation" of Third World workers is another canard, I truly believe, and it comes from our trying to project our standard of living on others. Yes, it would be great, absolutely wonderful, something we'd all love to see as Christians, if people in Third World countries could all have their standards of living raised. But here's the thing: these "exploited" workers have jobs. The jobs they take may not allow them to have iPhones, but they're working at the jobs they have because those jobs are preferable either to the jobs they had before, or to having no job at all. I think it's easy for well-meaning liberal-types to rail against things like "sweatshops", but as Stossel points out in the same book I quoted above, "In poor countries, the factories the well-fed American protesters revile routinely pay twice what local factories pay, and triple what people can earn doing much harder and more dangerous work in the fields."

Tony Campolo lost, with me, whatever shreds of credibility he had left when he took this thinking to an extreme that I think most liberals would even find untenable, arguing for a worldwide minimum wage (a la Dick Gephardt). What we have got to remember, I think, is that some of the things that we might find sub-par in our rich America are stepping stones out of poverty for people in the Third World.

Now to an area of agreement, Bob: the problem of consumerism. What can we do? Preach the gospel of Jesus Christ to a nation that is bent on the material, that believes that it deserves the best of everything, that seems to believe we exist as human beings for the aggrandizement and enrichment of ourselves. The government can't fix the problem of consumerism (and shouldn't try), because it's a heart issue. We need Christ in our lives to regulate our selfish desires, to trump our valuing ourselves on the basis of what we own, what we produce, what we afford. Republicans, Democrats, Libertarians are all alike impotent to solve this problem, but Jesus is able.

Great discussion, Bob; we've been privileged to have some great thinkers taking part in this forum. Thanks for hosting it.

Bob Robinson said...

Byron,

In the words of your "hero," John Stossel, "GIVE ME A BREAK!"

According to the Bureau of Labor, women earned on average 80.4 percent of men's weekly median earnings. In virtually every occupation listed, men earned a higher median wage than women, regardless of job title.

You can see the 2004 report yourself here: "Median usual weekly earnings of full-time wage and salary workers by detailed occupation and sex.". It lists the differences that men and women get paid for the SAME jobs. Stossel has become a caricature - "the know-it-all libertarian."

Bob Robinson said...

Byron,

I whole-heartedly agree that the solution to our culture's addiction to consumerism is the gospel.

Your solution, however, is truncated. You say that the problem is "a heart issue." You go on to say, "We need Christ in our lives to regulate our selfish desires, to trump our valuing ourselves on the basis of what we own, what we produce, what we afford."

I agree with these statements, as far as they can go. However, this is a truncated gospel because it focuses merely on individual Christians living individual lives of holiness. The gospel is more than changing the hearts of individuals (and then, as a by-product we can have a better society - the belief that as more and more Christians live life the way God wants it, societal injustices will fade away). "Jesus is able," yes; but in more than just in the individual hearts of believers yielded to him. These individual believers must be salt and light in the society, seeking to bring God's Justice and Shalom for all people. That is also the "gospel" - the gospel is both individual transformation and societal transformation.

With your line of thinking, abortion will best be defeated by "preaching the Gospel"- that "Women need Christ in their lives to regulate their selfish desires so that they will no longer seek abortions." In a sense, I'd agree with that. But it would be truncated - we also need to work for systemic justice, we need to do more than convert people to stop abortions.

Bob Robinson said...

As for "sweatshops" in third-world countries, I don't doubt that it's the case that many of these factories help the economic lives of these poor people. It's a complex issue. I submit that without regulations, corporations would indeed exploit workers. In fact, they still do, and cover it up.

Check out the eye-opening cover story from last year in Business Week (Secrets, Lies, And Sweatshops).

"For more than a decade, major American retailers and name brands have answered accusations that they exploit 'sweatshop' labor with elaborate codes of conduct and on-site monitoring. But in China many factories have just gotten better at concealing abuses. Internal industry documents reviewed by BusinessWeek reveal that numerous Chinese factories keep double sets of books to fool auditors and distribute scripts for employees to recite if they are questioned."

fanuv24 said...

So you buy the idea then, Bob, that employers are so sexist that they're willing to pay, what would it come out to, about 25% more in labor costs just so they can employ men? No, no sale; I simply don't buy it, and won't buy it. It's not that some discrepancies such as you point out don't exist; of course they do. But to attribute them to some latent sexism is just hard for me to swallow, because it makes such manifestly poor business sense, if indeed that's the explanation. I think that the explanation offered by the former NOW board member, a former crusader against such "discrimination", makes a heck of a lot more sense.

fanuv24 said...

Hey, you know I'm a "salt and light" guy, Bob; that's one of the reasons I blog, of course (and you as well!). But your comments seemed to be in significant measure about changing people's attitudes, about how people are "seen", about informing the "debate" we have on economic issues. In those matters, yep, I'll stand by my answer; we can't legislate how people think, or how we view people (though we can legislate how we treat people, to a point, of course).

Oh, and to reference China, sure, folks there are made to work for the good of the state; that to me is a different issue, and the first human rights abuse to fight there is the very fact of freedom-squelching Communism, not per se each of the many individual horrors that take place under its auspices. Even there, good people disagree on the manner to accomplish that, of course.

Bob Robinson said...

Byron,

I can understand that you think you are being logical when you ask, "If women can do a given job equally as well as a man can, do we seriously believe that there is a huge contingent of employers willing to pay substantially more to employ men just so they can hold onto their prejudices?" and that you don't buy that "employers are so sexist that they're willing to pay...about 25% more in labor costs just so they can employ men."

But this is exactly where economics is difficult. It is not a hard science that always works along logical lines like this. As Bob Goudzwaard writes, "A stone always falls according to the law of gravity, but a consumer will not always buy more if the market price goes down. Consumers and producers are living beings, and therefore never fully predictable in what they do."

You are presuming that if women are cheaper labor, then the market would logically hire more of them to unseat men for the same jobs. But economics is not that easy. Human living beings do not operate according to how we would expect them to act.

If sexism is the root cause of lower wages for women, then why would women be hired more than men for these jobs? Human beings do not always act according to the rules of a free market. They act according to their prejudices as well.

Michael Kruse said...

With regard to women in the workplace Fanuv24 is correct. When comparing a woman a given level of education and quality of experience to man with a similar level of education and experience, there is little difference in salaries.

Taken in the aggregate, men are employed 44 hours a week for every 40 hours women work. That accounts for more than half the difference in the aggregate disparity. Women also tend to choose more flexible jobs and are less willing to relocate. Furthermore, a number of women choose to leave the job market for years at a time to raise children. That places them behind male equivalents and that factors into the equation as well. (Now we can debate why women make these decisions but this is not about unequal pay for equal work.)

My wife is an industrial engineer. When she started out in the early 1980s, 6% of industrial engineers were women. It has been a while since I looked at the stats but women industrial engineers earn $1.06 for every $1.00 a man of similar education and experience earns. However, in the aggregate, women industrial engineers earn less than men. Why? Women have only begun to come into the field in the last twenty years and are disproportionately in the lower half of the experience curve. When you compare younger women to younger men of similar education and experience levels most of the difference evaporates. Factor in the other factors mentioned and you explain virtually all significant variation. Your labor statistics still group people in large buckets that do not represent things like hours worked or distribution of women in the profession according length of experience.

Fanu24 is precisely right. I can not get my find around the kind of thinking that on the one hand says that our economy is driven by corporate greed and on the other says that says we will pay male workers one third more than female workers just because we don’t like them.

You wrote:

“But this is exactly where economics is difficult. It is not a hard science that always works along logical lines like this. As Bob Goudzwaard writes, "A stone always falls according to the law of gravity, but a consumer will not always buy more if the market price goes down. Consumers and producers are living beings, and therefore never fully predictable in what they do."”

The law of gravity says that any two objects will fall to the earth at the same speed. If I drop two rocks out of an airplane, one with a parachute and the other without a parachute, they will not hit the ground at the same time. By Goudzwaard’s reasoning we must declare physics as not a hard science? Of course there are intervening variables that have an impact on supply and demand, elasticity of demand being one of them. Any Economics 101 student can identify these. Goudzwaard’s analogy is disingenuous.

There are unalterable economic realities. Supply and demand is one of them. If large numbers of people are prejudiced against hiring women, that will affect demand. Women will be paid less. But there can be other intervening reason as to why women are paid less. What the data shows is that when we compare apples to apples, there is little difference. I suspect one exception might be at the highest levels, although that is changing. At the highest levels, power becomes an increasingly important factor versus economic calculation, and men at the type having grown up in a different era may find it difficult to adjust.

Economics is more concrete than you are giving credit. It is complex. I find two things at work when it comes to critics of economics. One is that critics simply conclude it isn’t solid because they can’t or won’t master the complexity. The other is “magic thinking.” It is concluded that because a certain position “feels just,” they magically wish away confounding data. After all, it is easy to lie with statistics. Of course, it is even easier to lie without statistics, to yourself and to others. :)

Bob Robinson said...

Michael,

To be fair to Goudzwaard, he did NOT say that economics is not a "hard science," those are my words. If anyone needs to be accused of being disingenuous, it is I!

Goudzwaard offers some of the best neo-Calvinist understandings of economics I have ever read. His classic book, Capitalism and Progress: A Diagnosis of Western Society is a must-read for anyone interested in understanding the history of the faith in progress and the secularized economic theories that undergird capitalism.

I took that quote out of the context of what Goudzwaard was saying about the history of economics in his paper, Christianity and Economics.

At the risk of a VERY LONG POST, here's the quote in context (you might want to read the entire article):

Adam Smith is the first economist who tries to understand economic life mechanically, as a functioning mechanism. And according to his friend David Hume, the result was excellent: in a lunatic’s eyes it seems that Smith indeed invented society as a machine, composed of autonomous individuals as its working parts, and with a market "mechanism" as its unsurpassed core. In this way a new perspective was opened for Economics, which gradually became a type of real science as respectable, for instance, as Physics: a science built on its own scientific foundations, no longer dependent on insecure subjective opinions or normative value-statements, but founded on the basis of experimentally-found concrete laws (supply and demand) and secure measurement (prices!). In the XIX century, the mechanical worldview began indeed to dominate all economic-theoretical reflections.

But an enormous problem soon posed itself. A stone always falls according to the law of gravity, but a consumer will not always buy more if the market price goes down. Consumers and producers are living beings, and therefore never fully predictable in what they do. However, the new concept of science asked for just those determinate results and predictable outcomes, derived on the basis of objective measurements! So what was to be done? Was it necessary simply to forget that economics could ever just be a natural science, but that it was and had to be a social science, more oriented to understanding than to a full explanation of human economic behavior? That, however, would have meant that value judgments could still enter, and that the theory would not have been entirely free from the influence of metaphysics or different kinds of religious beliefs. Or was it necessary to maintain the so-called objectivity and neutrality of economics at all costs?...

...The blueprint for a solution dictated that if determinate outcomes are to be attained, with objective laws in economic thought in every case and at all costs, a solution must be found for the insecurity and whimsicalities of human behavior as such. Only two possibilities are available. The first is to internalize security, and the second is to externalize insecurity. You either have to make your theory immune to insecure outcomes, by presupposing a type of human being who is predictable and secure in all that he or she is doing (so internalizing security and determinateness in your theory), or you have to build up a type of economic theory, in which everything which causes insecurity or indeterminateness is removed from your own scientific domain (so to say externalized) by declaring it to be of a non-economic nature - as an issue properly studied by other sciences, or merely subject to probability-calculus.

The first possibility was chosen by John Stuart Mill (1844), who invented the homo economicus: the man who is always looking for the highest profits, the lowest prices, the maximum utility. He is secure and predictable and so, therefore, are the consequences of his actions. The theory now becomes determinate again - but the problem is that economic reality itself can easily escape from your theory! For if people act differently from the homo economicus, and they often do, then the theory has nothing to say.

So we see that economic theory, especially around 1870, began to follow the other line. It is the line of the externalization (elimination) of all forms and types of insecurity. A so-called "circle of data" is invented, a whole series of "given factors" for the economist. Data is no longer "explained", but accepted as given starting points for every economic analysis. To this data belongs, for instance, the preferences of the consumers: these are presupposed to be known, but also the desires of the producers are considered to be "given". Also the political and legal order is taken as previously known, together with the present state of technology and the size and capacity of the population. Everything which could possibly make the conclusions of the theory indeterminate is shifted by economic theory to the data-circle as the big asylum ignorantiae of economics, the biding place of all forms of ignorance. Also the word "circle" is indicative of how closed is the theoretical worldview which arises here. This circle of data, so to speak, surrounds what is fully determinate and measurable and therefore can be "explained" - which boils down to no more than all the movements of prices and quantities within the market-mechanism. The real markets are, one could say, stripped from all aspects of reality outside their mathematical and mechanical functions, to become fully determinate in their outcomes. So the new economic (neo-classical) theory gets its shape - the economic theory which still dominates economic thinking to this very day.

But what kind of theoretical world is emerging in this way? Let us look at that question very carefully, for it could be that we see parallels, reminders of our own present world and of our own present ways of thinking - particularly if we are sincere Christians. To put it differently, this worldview could also be very similar to the world as it functions today, as well as the world as we have learnt to see it - but which may, in both cases, be an entirely different world seen from the viewpoint of the economy concept seen in the Scriptures.

In the following paragraph, I will try to mention three basic characteristics of this new artificially created world. These characteristics are:

(i) a lack of responsibility and accountability

(ii) a loss of qualitative aspects and insights

(iii) a restless and risky dynamism

When we have considered these three features, I will try to draw some conclusions from a Christian point of view.

Bob Robinson said...

Michael and Byron,

Michael offers his analysis of the men/women discrepancy in pay by looking at what his wife does for a living. He says, “My wife is an industrial engineer. When she started out in the early 1980s, 6% of industrial engineers were women. It has been a while since I looked at the stats but women industrial engineers earn $1.06 for every $1.00 a man of similar education and experience earns. However, in the aggregate, women industrial engineers earn less than men. Why? Women have only begun to come into the field in the last twenty years and are disproportionately in the lower half of the experience curve. When you compare younger women to younger men of similar education and experience levels most of the difference evaporates. Factor in the other factors mentioned and you explain virtually all significant variation. Your labor statistics still group people in large buckets that do not represent things like hours worked or distribution of women in the profession according length of experience.”

This is a convincing argument. Let’s look at what my wife does for a living. She is a Physical Therapist – a field dominated by women. Women have been physical therapists for much longer than men, they have the same education, and women have much more experience in the field. So, according to conventional economic wisdom, women would make the same if not more than men, right?

However, Physical Therapy Journal reports that "after adjusting for differences in hours worked per week, years worked full-time, total months of leave from the profession, number of years at a facility, and number of years in a position, respondents who were salaried female managers in physical therapy still earned less than respondents who were salaried male managers did."

There certainly are a lot of factors that may contribute to this, but Michael’s theory certainly would not apply.

Michael Kruse said...

Bob, I'm at the airport and I will read the Goudzwaard stuff and respond later but as to the example involving my wife, my point wasn't in each and every field functions the way the industrial engineering field behaves. I was merely giving an example of some of the variables that come into play.

When we compare examples apples to apples what gaps do exist contract drastcially. My wife's exeprience or your wife's experience are not determinative. What I'm saying is that when you disaggregate the data and look cases like my wife's case and your wife's and then add them all together you get a different story than looking at aggregate data.

(I hope you are enjoying this discussion and that I'm not coming across to hostile. I enjoy good debate. :) )

fanuv24 said...

And Bob, I would add that I think it'd be foolish to suggest that there is never any sexist bias; it must happen on occasion, just as racism still occurs. My main concern would be that I find it impossible to believe that the only, or even the main, reason why whatever disparities still may occur do so because of prejudice. And the problem is that I think that is the automatic assumption, when it just doesn't make sense at all that it would be.

Further, I'm glad Michael's in this discussion, because he knows a whole lot more about economics than do I... :)

Bob Robinson said...

Byron,

I'm truly saddens me that a Christian leader would think that racism and sexism only happens "on occasion." I count you as a friend, so it saddens me even more.

fanuv24 said...

Bob,

That's borderline below-the-belt, amigo. The context---my intent---is to suggest that "on occasion" racism and sexism may trump common sense when it comes to employing and paying individuals, not that racism and sexism, in broader society, only happen on occasion. I'd have thought the context made my meaning obvious, since this is not a thread on racism and sexism per se. Now, it's possible that you disagree with me even on that, but I'll hold my ground on that one, and we're at the level of opinion there anyway.

While I would even there suggest that racism and sexism happen a.) a heck of a lot less frequently than they did, say, 30 years ago, and b.) they don't happen as often as the race-baiters might have us believe, of course there's more than "occasional" racism and sexism (and they're multi-directional, bi-directional in the case of sexism) in American society today. As long as we look at people first through the lens of their skin color, we've got work to do. Sexism is a bit of a different animal; men and women are equal in the sight of God and of the law, but there are legitimate differences (which some are trying---futilely and foolishly---to deny) between men and women. We need to recognize such without unfairly discriminating on the basis of sex.

Bob Robinson said...

Byron,
Sorry about the border-line low blow. When you wrote that, I thought to myself, "He can't possibly be one of those evangelicals that denies racism and sexism still exists in America, can he?" So many white, male (and, sometimes, southern) evangelical leaders are simply ignorant of the injustices concerning these two, thinking that it was an issue 30 years ago, but we've moved on from that. They think that since they harbor no ill-will toward blacks or women, then there must not be any real systemic discrimination in our society any more.

Granted, "we've come a long way, baby!" But women still remain less advantaged than men. While people like John Stossel are trying to deny it and even try to justify these inequalities, Christians must not, in my opinion, do so. We need to come alongside those being oppressed; it is our mandate from our Lord.

On the issue of race, Michael O. Emerson and Christian Smith, in their must-read book, Divided by Faith: Evangelical Religion and the Problem of Race in America explain, "For them (many white evangelicals), the race problem is one or more of three main types: (1) prejudiced individuals, resulting in bad relationships and sin, (2) other groups — usually African Americans — trying to make race problems a group issue when there is nothing more than individual problems, and (3) a fabrication of the self-interested — again often African Americans, but also the media, the government, or liberals.”

If this is not the case with you, then, I am VERY SORRY. No low blow was intended.

fanuv24 said...

Bob,

Thanks. I'm not sure I read Stossel to say what you suggest, though, but merely to state that the market generally takes care of all sorts of issues that we think we need to meddle with.

I've seen that book, and it's probably worth the read, you're right.